CRA indicates that GAAR very well may apply to s. 107(2) distribution to a Canco owned by a non-resident beneficiary

In 2016-0669301C6 and 2017-0693321C6, CRA indicated that the distribution of property by a Canadian-resident discretionary family trust to a Canadian corporation whose shares were wholly owned by a newly established Canadian-resident discretionary trust circumvented the scheme of the 21-year rule in s. 104(4) as buttressed by s. 104(5.8), and would consider applying the GAAR.

CRA has now commented on the situation where property would be deemed by s. 107(5) to be disposed of at fair market value if distributed by such a trust to an individual beneficiary who had emigrated from Canada, but the property is instead distributed to a beneficiary that is a Canadian corporation owned by the non-resident beneficiary. CRA stated that it will consider that this transaction did not achieve the intention of s. 107(5) of ensuring that Canada maintains its ability to tax the gain that accrued while the property was held by the Canadian trust, and would consider applying GAAR, unless there was substantial evidence supporting its non-application.

Neal Armstrong. Summary of 21 November 2017 CTF Annual Conference Roundtable, Q.1 under s. 107(5).